Northern and Shell Network plc

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Northern and Shell Network plc

FOUNDING A PUBLISHING EMPIRE IN 1974

Richard Desmond’s first contact with the world of business came at the age of five—Desmond’s father, a salesman, had lost his hearing and would bring his son along to interpret for him. Desmond quit school at the age of 14, and took up playing drums at the start of the British pop revolution. As he told Forbes: “I wanted money and self-esteem, and I needed something to get me there quick.” In order to buy his first drum set, Desmond worked for a time at a nightclub in London, where he came into contact with many stars of the day. While drumming was to remain a lifelong hobby, Desmond’s interests lay more in business, particularly sales. After a first job selling classified ads for newspapers, Desmond began selling ads for pop magazines. This led him to open his own music store. At first Desmond sold records, but soon added sales of musical equipment. By the early 1970s, Desmond had added a second store.

Desmond’s popularity among the bustling London music scene, by then the center of the global recording industry, brought him into contact with Ray Hammond, who had developed the idea for a monthly magazine titled International Musician and Recording World. Unlike existing music magazines, which were fan-oriented magazines focused on the players, Hammond’s magazine was geared toward the musicians themselves, and featured a high proportion of equipment reviews, often written by the musicians themselves. Hammond recruited Desmond to the project, and together they found financing with Malcolm Green. With Hammond serving as editorial director, Desmond’s connections in the music industry, and Green’s backing, International Musician launched in 1974.

The magazine was an instant success, and formed the basis of the Northern & Shell publishing group. International Musician quickly imposed itself as a leader in its category in the United Kingdom, remaining in publication through the 1980s. Success in the United Kingdom also led Northern & Shell to develop U.S. and German versions as well. The magazine proved especially popular with musical equipment manufacturers, providing a focused market for their products. The magazine’s strong advertising sales led Desmond to recreate the International Musician concept for other markets, and by the end of the decade Northern & Shell had launched some 20 different titles, each catering to a specific market, such as stamp collecting or bicycling.

Hammond and Desmond remained partners through the 1970s, founding a second business together, The Advertising Practice. That company, which focused on the consumer products sector, served as a complement to Northern & Shell’s growing range of specialist and hobbyist magazines. Hammond left the company in 1980, however, in order to pursue a career in writing and public speaking, becoming one of the United Kingdom’s most well-known “futurologists.” Desmond then became 100 percent owner of Northern & Shell.

Northern & Shell might have remained a modest magazine publishing company if not for Bob Guccione, the notorious publisher of Penthouse. New Jersey–born Guccione had in fact gotten his start in publishing in London in the mid-1960s, when he worked as a journalist and photographer for London American magazine. In 1965, Guccione decided to launch his own magazine, patterned after the successful Playboy magazine. By 1969, Guccione had transferred the magazine to the United States, where Penthouse quickly became the major rival to the Playboy empire. Into the early 1980s, as Guccione sought to establish a media empire, he decided to launch a new U.K. edition of his flagship magazine. For that, he contacted Richard Desmond.

COMPANY PERSPECTIVES

The Core Values: Northern & Shell was founded in December 1974 with the vision of becoming a significant force in British and worldwide media. That ambition was developed through a broad portfolio of magazines and broadcast interests and came of age with the acquisition of Express Newspapers in November 2000.

Today, Northern & Shell owns four national newspapers and is a 50 percent joint venture partner in two more in Eire. It also dominates important parts of the consumer magazine market in the UK and worldwide with 12 foreign editions, operates in all major areas of publishing and has diverse interests in television, print, distribution, investment and property.

The strengths of the network lie in its skill in identifying key areas of commercial growth and its decisiveness and creative drive in developing brands that excel in these markets. Essential to the operation is the building of dedicated teams with pride in what they produce and a willingness to respond to customer needs.

Northern & Shell is determined to maintain all its products and activities as benchmarks of excellence to its readers, customers, advertisers and business partners.

Desmond agreed, taking over the U.K. license for Penthouse in 1982. Under Northern & Shell, Penthouse UK soon established itself as a leading men’s magazine. It also provided the springboard for the company’s first real fortune. As he had done with his hobbyist titles, Desmond quickly moved to replicate his success with Penthouse, and by the late 1980s had launched the first in a stream of “specialist” pornographic magazines. Despite the specific and, for many, repugnant nature of their titles, Northern & Shell’s “top shelf[H11033] (so-called because they were kept on the top shelves of newsstands) magazines were generally considered to remain within the soft porn category. Northern & Shell also took over the U.K. license for Penthouse -spinoff Forum.

Following criticism from a member of Parliament, who complained of the sexist nature of Desmond’s men’s titles, the company struck back, launching For Women. That title became a new success for the company, selling more than 600,000 copies. Into the early 1990s, Desmond also made a move into the United States, operating a telephone sex line in New York City. That operation allegedly brought Desmond into conflict with the Mafia, under circumstances that were to remain a mystery (and denied by Desmond). By the end of that decade, Northern & Shell had given up its Penthouse license.

GOING LEGIT IN THE NEW CENTURY

Desmond’s advertising interest allowed him to expand into other media categories in the 1980s. The company became one of the first to move its headquarters to the London Docklands area. There, Northern & Shell set up its own production studios, where it began producing advertisements for the British television market. In the mid-1990s, the company moved to leverage this experience for its entry into the emerging satellite television market. This led the company to launch its own satellite programming, including a soft porn channel, The Fantasy Channel (later Television X), which debuted in 1995. Through the end of the decade, Northern & Shell developed Television X into four channels. By the 2000s, the company had added payper-view and pay-per-night programming as well, notably through its Red Hot channel.

In the meantime, Northern & Shell had been pursuing other directions. A dispute with its printer and distributor in 1991 had nearly forced Northern & Shell’s collapse, when the larger company refused to distribute the company’s magazines. Desmond fought back, threatened to sue, and eventually forced the distributor to agree to the settlement. Under that agreement, Northern & Shell transferred its hobbyist titles to the distributor in exchange for the right to keep its pornographic titles and a cash payment of more than £60 million.

The cash package allowed Desmond to develop new ambitions for his company. In 1993, Desmond approached United Newspapers, later known as United Business Media, with an offer to buy out its ailing national daily, the Daily Express. The deal never came to fruition.

Instead, Desmond turned to a new project, that of entering the U.K. mass market magazine sector. Desmond identified the potential for the underdeveloped celebrity market, which, in the early 1990s was occupied primarily by Hello! magazine. That title, however, focused especially on gossip and photos involving European royalty. Desmond’s idea was to develop a title that focused on the British celebrity circuit. Backed by an investment of some £30 million ($50 million), OK! debuted in 1993. Desmond’s longstanding connections with the U.K. music scene, including his friendships with such noted personalities as Robert Plant, Roger Daltrey, Phil Collins, and Paul McCartney, as well as his willingness to pay celebrities for exclusive photos and news, ensured that OK! became a quick success.

KEY DATES

1974:: Richard Desmond establishes Northern and Shell Network plc (Northern & Shell) in partnership with Ray Hammond in order to launch International Musician magazine; company then launches series of 20 similar hobbyist-oriented titles.
1982:: Desmond receives U.K. license to produce local edition of Penthouse magazine, beginning Northern & Shell’s emergence as a leading publisher of pornographic magazines.
1993:: Northern & Shell enters mainstream magazine market with launch of OK! celebrity title.
1995:: Company enters satellite television market with launch of The Fantasy Channel (later Television X).
2000:: Northern & Shell acquires Express Newspapers for £125 million.
2004:: Company sells pornographic magazine titles and launches Australian edition of OK!
2006:: U.S. edition of OK! is launched, as well as franchised editions in China, Malaysia, Thailand, Greece, Singapore, and elsewhere.
2007:: Company shuts down Happy! magazine, launched in 2005.

OK! ’s growing circulation encouraged Desmond’s new goal of joining the upper echelons of the U.K. publishing industry. When news came that United Newspapers was seeking a buyer for its Express Newspapers division, including the Daily and Sunday Express, as well as the tabloid format the Daily Star, Desmond moved swiftly, beating out competitors with an offer of £125 million. United accepted, and Northern & Shell became the owner of one of the United Kingdom’s oldest and largest national daily newspapers. The move proved highly controversial, sparking a furor in the press, and earning Desmond the nickname of “Dirty Des.”

Desmond moved to cut costs at the Daily Express, which for years had been struggling with declining circulation and mounting losses, slashing some 25 percent of its staff. The revitalized newspaper returned to profitability, while its circulation stabilized. Meanwhile, the Daily Star proved the more robust of the two, growing strongly into mid-decade.

Desmond attempted to entrench himself deeper into the U.K. newspaper market, announcing his plan to bid for the Telegraph group of newspapers. Once again surrounded by controversy, Desmond decided that his stable of pornographic titles had become a burden, and sold most of those titles in 2004. Ultimately, Desmond’s bid for the Telegraph group failed, however.

In 2004, Desmond was approached by a U.S. publisher with an offer to buy the OK! franchise in order to develop it internationally. Instead, Desmond adopted the idea as his own. By the end of that year, the company had started up a subsidiary in Australia, which launched an Australian edition of OK! Elsewhere, Northern & Shell developed a network of partners, which acquired the license to produce local editions of OK! In this way, Northern & Shell expanded its range of operations to China, the Philippines, Thailand, Singapore, India, Turkey, Mexico, Greece, the Middle East, and Malaysia. In 2007, the company also expected licensed local editions of the title to launch in Spain, Russia, and South Africa. In 2006, meanwhile, Northern & Shell itself oversaw the launch of a U.S. edition of OK!

Desmond continued to target the mainstream magazine market into the middle of the first decade of the 2000s. The company launched a youth-oriented celebrity magazine titled New! in 2003. In 2005, the company believed it had spotted a new gap in the market, and launched the shopping-oriented title Happy! That magazine failed to build sufficient circulation, especially after rivals including Emap launched similar titles. By March 2007, Northern & Shell decided to throw in the towel, shutting down Happy! Despite this setback, the company’s OK! franchise continued to grow strongly, while its control of the Daily Express and Daily Star maintained Northern & Shell’s position at the center of the U.K. media market.

M. L. Cohen

PRINCIPAL SUBSIDIARIES

Broughton Printers Limited; Express Newspapers; Northern & Shell Distribution Limited; Northern & Shell Finance Limited; Northern & Shell Group Limited; Northern & Shell Magazines Limited; Northern & Shell North America Limited (U.S.A.); Northern & Shell Pacific Limited (Australia); Northern & Shell plc; Portland Enterprises Limited; Portland Television Limited; RHF Productions Limited.

PRINCIPAL COMPETITORS

VNU Business Media Europe Ltd; Pearson PLC; Reed Elsevier PLC; Daily Mail and General Trust PLC; The Thomson Corporation PLC; Emap PLC; Associated Newspapers Ltd.; Informa PLC; Guardian Media Group PLC; BBC Worldwide Ltd.